Retirement plan laws in Oregon: The basics of OregonSaves

In response to the pending retirement crisis, many state governments are launching state-sponsored retirement savings plans. Illinois and Oregon led the way when the two states introduced the nation’s first state-sponsored plans in 2017. And after launching in November 2017, OregonSaves became the first state-provided, auto-enrollment IRA program in the country.

An estimated one million Oregonian workers lacked access to a work-based retirement plan prior to the implementation of OregonSaves.Additionally, it was projected that about 64,000 businesses would have employees eligible to participate in the program, according to the Center for Retirement Research at Boston College. 

So, has the state-sponsored plan delivered on its promises? In this article, we’ll focus on what businesses and employees can expect from Oregon’s state retirement plan. We’ll review how the program has progressed and performed. And we’ll compare the program to other retirement savings benefits options available to small employers, such as the commonly used 401(k). 

How does OregonSaves work?

Offered by the State of Oregon, OregonSaves shouldn't be confused with a pension plan and has no connections to the Oregon Public Employee Retirement Fund (PERS). Employees of an employer enrolled in OregonSaves are automatically enrolled in the plan, unless they decide to opt out within 30 days of receipt of plan materials by the employer. Self-employed workers need to enroll in the program on their own. 

By default, employers deduct 5% of each employee's paycheck and contribute that amount to the Roth IRA in their name. Starting with the first paycheck deduction, participants can change contribution levels in 1% increments, with a minimum of 1% and as much as 100% of gross pay. However, employees are limited to only one contribution change per month. 

By default, the first $1,000 in contributions will be invested in a capital preservation investment fund (a U.S. Government money market fund) called the OregonSaves Capital Preservation Fund. All subsequent contributions will be invested in an OregonSaves Target Retirement Fund based on age—a growth-oriented portfolio allocation that shifts to an income portfolio allocation as the fund draws near its target date. The target-date funds are managed by State Street Global Advisors (SSGA) and have target dates ranging from 2020 to 2060. However, enrolled employees have the option to select alternate funds from State Street, including an S&P 500 index fund or a U.S. Government money market fund.

Regardless of investment choices, each OregonSaves plan holder is charged an annual expense ratio of approximately 1% (that’s $10.00 per $1,000—more on if that’s a good thing or not below!). The fund charges no fees for making withdrawals, changing contribution percentages, or moving monies between investment funds. However, all distributions are subject to applicable federal and state taxes, and those that qualify as early distributions are also subject to additional penalties.

Is OregonSaves legally mandatory? And are there penalties for businesses that don’t comply?

Yes, OregonSaves is legally mandatory for employers based on their registration deadlines (more on this below). No matter whether they employ one or hundreds of individuals, all Oregon businesses will need to do something: enroll employees or file a Certificate of Exemption. However, the State of Oregon assigns no fiduciary risk to employers and doesn’t force employers to match any funds or guarantee any investment performance.

In May 2019, Oregon Governor Kate Brown signed SB164 into law, which established civil penalties against employers who fail to provide access to a retirement plan by their appropriate OregonSaves deadlines. The law took effect on January 1, 2020, meaning that employers not in compliance with the mandate must pay a fine of $100 per affected employee, up to a maximum of $5,000 per calendar year.

What are the OregonSaves registration deadlines?

OregonSaves kicked off a pilot program in July 2017 for a small group of businesses and followed with an official launch in November 2017 for employers with 100 or more employees. Since then, registration dates have been staggered over the span of four years. Below is a current schedule of previous and upcoming deadlines: 

• Employers with 20 or more employees: December 15, 2018

• Employers with 10-19 employees: May 15, 2019

• Employers with 5-9 employees: November 15, 2019

• Employers with 3-4 employees: March 1, 2023

• Employers with 1-2 employees: July 31, 2023

Using this schedule, Oregon employers must provide eligible employees informational materials about OregonSaves at least 30 days before the initial enrollment date. Employers will receive those materials from the Plan Administrator at least 60 days before the initial enrollment date. To determine your deadline, use the number of employees in your most recently filed Oregon Quarterly Tax Report (Form OQ). 

New employers must use the applicable date from the schedule above or 90 days after new employers meet the definition of employer, whichever is later. This rule may buy new companies/employers time, because the plan defines an employer as a business that has provided employment in each of the 18 separate weeks of a calendar quarter or has a total payroll of at least $1,000 in a calendar quarter.

If you’re an employer with four or fewer employees and are interested in participating sooner than the scheduled start date, reach out to the Oregon State Treasury by: calling 1-503-378-4329 or emailing [email protected].

Eligibility of employees: Who qualifies for OregonSaves?

Any worker in Oregon age 18 and older who doesn’t have access to an employer-sponsored retirement plan is eligible to participate in OregonSaves. Self-employed workers and part-time workers are also eligible to participate in the plan. Seasonal employees that have worked for an employer for more than 60 days—the window for employers to enroll new hires in the program—are eligible for OregonSaves. Eligible Oregon-based workers may sign up at OregonSaves.com if they’re self-employed or their employers don’t facilitate OregonSaves.

According to OregonSaves, employees are responsible for determining if they meet income limits. If you’re married filing jointly or a qualifying widower, and have a modified AGI less than $218,000, you can contribute up to $7,000 in 2024 ($8,000 if you’re older than age 50). Similarly, if you are single, head of household, or married filing separately and make less than $138,000 up to these limits. Refer to this chart if your modified AGI is outside these thresholds.

OregonSaves will provide a traditional IRA account as an option to workers above these income thresholds “at a later date.” As of 2021, OregonSaves did offer a traditional IRA option to savers that need to recharacterize Roth IRA contributions from the prior year.

Learn more about OregonSaves alternatives:

• Use our calculator to see how much a 401(k) would cost with SECURE Act tax credits applied.

• Read more about the fees associated with launching and maintaining a 401(k) plan for your business.

• Read our guide on setting up a small business 401(k).

What happens if your company already offers a 401(k)?

If your business already offers a qualified plan, such as a 401(k), to all of your employees, you don’t need to facilitate OregonSaves for your employees. You will, however, file a Certificate of Exemption by certifying that you offer a qualified plan—such as a 401(k) or 403(b)—to all your employees within 90 days of hire. Once approved, a Certificate of Exemption is valid for three years from its original date of filing, as long as the employer continues to offer a qualified plan.

When it’s time to register your company or certify that you are exempt from facilitating the OregonSaves program, you’ll receive a notification through email or U.S. mail. Once you receive this notification, go to the OregonSaves website to enter the access code provided to register your business or certify your exemption. Even if you already offer a retirement plan, you must go to the website to claim your Certificate of Exemption.

Is OregonSaves working? 

While time will tell the long-term effectiveness of the program, results have been mixed as of 2021. For starters, while OregonSaves has generated savings for more than 67,000 participants through April 2020, the average account balance was only $754, according to a National Bureau of Economic Research study from February 2021. It’s encouraging that Oregon employees are saving for retirement. But if this average account balance is any indication, auto-enrollment IRA plans may not be successfully setting up individuals for retirement in the long-term.

The financial downsides of OregonSaves

The intention of this plan to make more Oregonians save more for retirement is laudable. However, it has four drawbacks.

1. A 1% annual program fee is too high

Many retirement plans offer access to low-cost index funds (the Human Interest average for allocation profiles is 0.07%). For example, the Vanguard Total Stock Market Index Admiral (VTSAX) expense ratio was 0.04% as of April 2021. Compared to the 1% annual program fee charged by OregonSaves, holding a $10,000 investment in OregonSaves would cost you $100 per year, while the same investment with Vanguard VTSAX would only cost $4 per year.

While it’s true that OregonSaves was created for individuals who don’t have access to employer-sponsored retirement plans, those individuals should shop around for traditional and Roth IRAs and compare investment fees before enrolling in this plan. To make an apples to apples comparison, look for retirement plans offering access to target-date funds, low-cost index funds, and money market funds. For example, Human Interest offers you access to all these types of funds and more (depending on your employer’s choices).

2. Target-date funds are underperforming

Remember, unless you choose otherwise, all money after the initial $1,000 invested through OregonSaves will be put in a target-date fund. While target-date funds provide convenience to the beginner investor, these actively-managed investment funds have highly variable returns that may not cover the high investment fees they command. Regardless of their investment horizon, all State Street target-date funds have returns below those of the S&P 500 for the same period. This is supported by an analysis of more than 1,700 target-date funds conducted by online financial advisor FutureAdvisor. Additionally, target-date funds have a one-size-fits-all approach that isn’t suitable for all investors.

Here is a full review of target-date funds, which help you determine whether or not they would be a suitable investment for you.

3. More education around a Traditional IRA as an alternative

Making contributions with after-tax dollars makes sense for young retirement savers who have a high potential for income growth. On the other hand, older retirement savers and those closer to retirement age may be better served by a traditional IRA, allowing them to make contributions with pre-tax dollars and reducing their taxable incomes.

Starting in 2019, OregonSaves offered a traditional IRA to savers who need to recharacterize their prior year Roth IRA contributions. Making a stronger push for this option is an easy fix and, to be fair, the Oregon Retirement Savings Board still has time to develop and adjust any materials to do so.

4. There’s a lack of employer match

While it’s understandable that OregonSaves is a very basic, one-size-fits-all program, the lack of opportunity for employers to make matching contributions is troubling. An employer match can help attract and retain talent, reduce turnover, and boost employee morale. It can also help employers take advantage of tax breaks.

As OregonSaves is rolled out with large employers, this feature may become available if enough plan participants and employers ask for it. OregonSaves does provide the option to invest in a traditional IRA, after all. (This is important, because all employer matching contributions have to go to a traditional IRA by law, so employer matches could be logistically possible down the road!) However, as the plan currently stands, employer matches aren’t available.

The bottom line: Stay informed and shop around for alternative options

To stay updated on the latest developments of OregonSaves, visit OregonSaves.com or check back here. All materials related to Oregon Retirement Savings Board meetings are available online. You can also sign up to receive email updates, meeting agendas, and notices here.

Remember, if you set up a 401(k) for your company, you can file a Certificate of Exemption from the OregonSaves program. But don’t just commit to any 401(k) plan—many 401(k) providers may sell plans with high fees that can actually cost more for you and your employees than the OregonSaves IRA.

When analyzing how to save for retirement, compare OregonSaves to all other available retirement accounts, and always check for all applicable investment fees and available services. Many studies have indicated that investment cost is the only reliable predictor of investment performance. To help you evaluate your options, here’s a list of additional resources:

• 401(k) vs. Traditional IRA vs. Roth IRA vs. myRA

• 401(k) vs IRA: How to Decide

• Roth 401(k) vs. Traditional 401(k)

If you’re looking for a 401(k) for your employees, click here to request more information about Human Interest.